Ether Capital Turns Four

Today marks Ether Capital’s fourth anniversary as a public company, something we are extremely proud of.

In 2018, we made our debut as the first Canadian company to give investors direct exposure to Ethereum. Still today, we remain the leading access point to Ethereum and Web3 infrastructure and are one of the largest holders of ether (ETH) in the capital markets.

Over the past few years, we’ve seen billions of dollars in capital pour into the sector, giving rise to new crypto-related businesses and verticals. While there’s lots to look forward to in the months ahead, we wanted to take this opportunity to reflect on our accomplishments over the past four years and what sets Ether Capital apart from others in the space.

Ethereum reshaping our financial landscape

From day one, we have always believed that Ethereum is a once-in-a-generation asset that will disrupt the world of finance. Despite most of the attention being focused on Bitcoin when we started the company, we did not stray from our conviction that Ethereum would become a global clearing house and settlement layer for a wide-range of activities. Its programmable base layer and open-source infrastructure is what led to the fascinating discovery of non-fungible tokens (NFTs), decentralized finance (DeFi) and the metaverse that captured mainstream attention in 2021. Our investment thesis has always revolved around projects, technologies, protocols and businesses that leverage the Ethereum ecosystem. This is why we often tip our hat to the development community building the key infrastructure that’s instrumental to the industry’s success. This will be the plumbing and foundation for the next generation of the internet known as Web3.

Unique structure

Ether Capital is made up of leading venture capitalists, crypto natives and traditional finance executives who have insight into the latest developments in the space, and the wherewithal to introduce this cutting-edge innovation to traditional investors. Different from closed funds or ETFs, our corporate structure allows us to participate in crypto-related activities like staking, while having the knowledge to identify critical infrastructure that will help fuel mainstream adoption. Earlier this year, we made two strategic management hires and brought on Jillian Friedman as our Chief Operating Officer and Ian McPherson as our new President & Chief Financial Officer. In addition to the strong team we already had in place, both Jillian and Ian will give us the firepower we need to grow our business and seek out new opportunities in the fast-growing industry.

Staking pioneers

In December 2021, we became the first public company in the world to stake a significant amount of ether (10,240 ETH) to generate meaningful revenue. In February 2022, we doubled our initial investment and staked an additional 10,240 ETH at a yield calculated at ~5%. In less than four months, we have surpassed $1 million in staking rewards simply by locking up our assets to validate the network in an eco-friendly way. It’s widely anticipated that more institutional investors will stake their assets in 2022 either before or after the Merge, and Ether Capital is proud to be leading the way on this front.

Shaping Canadian regulation

As a fully-regulated company that operates in the space, we understand the industry’s unique complexities and what it takes to properly regulate the sector. Working alongside policymakers, we were one of the first organizations to create direct access points for Canadian investors to get exposure to digital assets. In 2021, we successfully launched the world’s first spot Bitcoin ETF alongside Purpose Investments that amassed $1 billion a few weeks after it began trading, making it one of the fastest-growing ETFs of all time. Shortly after BTCC’s launch, we assisted Purpose with its Ether ETF, proving traditional investors can get direct exposure to ether without having to navigate the space in a crypto-native way. We also recently became founding members of the Canadian Web3 Council — a new industry association featuring Canada’s top cryptocurrency and Web3 companies — that’s dedicated to helping government officials develop a national strategy for digital assets. While there are still many challenges ahead, we’re optimistic Ether Capital’s recognition in the space and productive relationship with regulators will afford us a seat at the table to help shape meaningful policies that guide the industry for generations to come.

The road ahead

Bootstrapping a business takes guts and our unwavering commitment to Ethereum has allowed us to become trailblazers in an industry we are so passionate about. But our work is far from over and we have much to do in the coming months as we focus on our next phase of growth. For now, we want to take this opportunity to thank our shareholders, our board, supporters and everyone who believed in us along the way. Remember, it’s the network effect (aka you) which defines Ethereum’s success.


The original version of this article was published on Medium:

Ether Capital 2.0 and The Road to Staking

On December 15, 2021 we announced that Ether Capital had officially staked $50 million, or 10,240 Ether, onto the Beacon Chain (“Eth2 Staking.”) This marks an inflection point as an organization that will have a meaningful impact on our shareholders and the wider ecosystem.

We believe that Ether Capital is in a unique position to provide public market access to Ethereum and Web3. As we transition from being a passive owner of Ether to an operating business, we’re excited to generate meaningful revenue and expand our team and activities to deliver shareholder value.

The road to Eth2 Staking has been a difficult one for us, which has been magnified by our standing as a publicly traded company in Canada. It’s a path we’ve been committed to since Ether Capital formed in early 2018 and we wanted to take the opportunity to share with you our journey in getting to this moment — what it means, and what’s next for our company.

Ether Capital 1.0: 2018–2021

Ether Capital was born out of a recognition that Ethereum represents one of the greatest investment opportunities in our lifetime and is one of the most important pieces of infrastructure of the Web3 movement. Amidst the bull market in 2017, there was a tremendous amount of hype around cryptocurrencies and it was tough to find the signal from the noise. That’s why Ether Capital was formed — to capture investor attention and help bring quality exposure to this asset class. We were a group of crypto-natives and established members of traditional finance and venture capital who joined forces to create the first access point in the capital markets that could identify this exciting opportunity.

Ether Capital acquired more than 40,000 Ether (“ETH”) and gave retail investors the opportunity to follow us on a very focused narrative, including a long-term thesis around Ethereum and Web3.

Staking has been a fundamental part of our roadmap from the beginning. It gives us an opportunity to generate a yield off of our ETH balance by participating proactively in network validation, security and decentralization. It’s a milestone that we were — and still are — very proud of, as it also means Ethereum has progressed from energy-intensive “mining” to energy-efficient “validating.” Although we faced obstacles like a prolonged bear market in 2019, a smaller asset base, technical setbacks and delays in the Ethereum 2.0 design, we remained committed to the importance of staking activities to benefit our shareholders. By staking, we’re able to generate significant cash flow by validating transactions, which demonstrates our contributions to the network and helps secure the world’s leading smart contract platform.

Ethereum 2.0 officially went live in December 2020, bringing with it the ability to move any existing ETH onto this brand new network and begin generating the yield opportunity our investors had been waiting for. Sounds easy enough, right? Staking, however, came with multiple catches!

  • The ETH deployed into staking would be locked up for an unknown period of time — potentially years — which presented a challenge with respect to our liquidity
  • There was, of course, a real risk of an early-adopter bug in the code which could lead us to lose the staked ETH
  • The biggest complication for an organization such as ours was embedded in the complexity of this new network — a lack of smart contract support as it related to custody
  • Since we’re a public company, we’re subject to stringent rules and controls that govern the Canadian capital markets

Background: Ethereum 2.0, Staking and Phase 0

Before we dive into the complexities above, let’s provide some framing on Ethereum 2.0.

Right now, Ethereum is running a version 1.x of its software that launched in 2015 and has been an extraordinary success in terms of usage and value creation. All applications currently exist on Ethereum 1.x, which is a ~$450 billion network generating more than $50 million in transaction fees per day. You may be wondering about the energy consumption of such a network, especially for the underlying verification algorithm called proof-of-work (i.e., “mining.”) And you are correct, mining is an energy-intensive process. The goal is to transition all applications to a new network infrastructure called Ethereum 2.0. The transition from Ethereum 1.0 to 2.0 is all about replacing proof-of-work with a 99% more energy-efficient consensus called proof-of-stake (i.e., “staking”).

To analogize this, imagine a very large airplane with millions of passengers and billions of dollars of valuable cargo. This airplane is an old model and a new one is being built, which is much bigger, safer and way more fuel efficient. There’s one problem though — the move to a new airplane has to happen mid-flight! That is, you can’t land the existing airplane and swap out all the passengers and cargo. For developers, this carries significant risk and is a huge engineering challenge.

In order to mitigate as much risk as possible, Ethereum’s core developers decided it would be best to roll out this new network in three distinct phases.

We are currently in Phase 0 of Ethereum 2.0, which is the “heartbeat” of this new proof-of-stake blockchain. In this phase, the only functionality lies in the ability to transfer Ether from Ethereum 1.0 (i.e., the existing mainnet) onto Ethereum 2.0 (i.e., beacon-chain) in a one-way direction. In Phase 0, Ether deposited in Ethereum 2.0 can only be used for staking and cannot be transferred. For every 32 Ether deposited into Ethereum 2.0, one validator node participates in Ethereum’s proof-of-stake protocol while earning rewards and is locked until some later point in time (expected to be mid-2022.)

Phase 1 (i.e., the “Merge”) is when Ethereum 1.0 merges into Ethereum 2.0 and includes a scalability upgrade known as “sharding,” which is basically a way to increase blockchain storage and throughput. This phase marks the end of proof-of-work mining on Ethereum. Phase 2 (i.e., shard chains) is way down the road and includes more ambitious scaling and functionality upgrades.

Why Multisignature Wallets Matter

At Ether Capital, we do not rely on a third-party custodian and, since our inception, have always held our ETH in a multisignature wallet secured by a smart contract from Gnosis. This Gnosis solution is a best-in-class product used by much of the industry since the early days and has been heavily stress tested. This specific software was configured for us to have assets only be accessible if a majority of our board of directors confirmed the transaction. As noted above, Ethereum 2.0 is a “wireframe” blockchain that does not support smart contracts (remember, there are no applications or functionality yet on this new network beyond staking.) So we tried to figure out how to participate in this new opportunity, but in a way that was respectful of the multisignature setup.

Would it be appropriate to deploy meaningful capital to staking using a wallet where only one member of our team had control over the private keys? Despite the ease of use, we decided firmly that this was not an appropriate solution for our company.

However, to signal our commitment to staking and the wider Ethereum ecosystem, in December 2020 we deployed a single validator (representing 32 ETH) using a single key wallet, and took steps to secure the private key. For any additional commitment to staking, we resolved this would only be implemented if we were comfortable with the solution and/or it addressed the multisignature smart contract issue. Over the next few quarters, management and technical members of the board researched ways to partner with existing blue-chip custodians or solve the issue in-house.

We researched and analyzed various key generation setups for securing Ethereum 2.0 private keys that would mimic a multisignture process (i.e., BLS signatures with Horcrux.) Ultimately this approach didn’t work either as it was highly technical and wasn’t stress tested enough to risk company funds. We also found that the custodial approach wasn’t available, meaning no large custodian had rolled out an appropriate custodial staking solution for us. At the time, we concluded that the risks of staking far outweighed the rewards.

This summer, however, an update to Ethereum 2.0 was rolled out that allowed an existing Ethereum address to be used for Ethereum 2.0 staking withdrawals. A beacon of hope! Soon after, Shayan Eskandari joined us in our journey as Ether Capital’s Chief Technology Officer. He was previously a smart contract engineer at one of the leading smart contract auditors in the ecosystem, and a blockchain engineer in a prior role.

To participate meaningfully in Ethereum 2.0 staking, we upgraded our previous Gnosis solution to the modern evolution of this multisignature wallet called the “Gnosis Safe.” This infrastructure upgrade not only allowed us to stake our Ether in a future proof and secure manner, but provided more flexibility for participation actively in other areas of crypto, like decentralized finance (aka “DeFi.”) Over the last few months we’ve been in close dialogue with a leading staking provider, Figment Inc., which has helped us work through appropriate steps to stake a meaningful portion of our ETH. All of these steps required heavy documentation, processes around controls and oversight in a public company structure. For many in the crypto ecosystem who are used to self-custody and instant transactions, this might seem overwhelming, but in reality it’s very necessary.

Despite the setbacks, a delayed timeline and many technical dead-ends, we’re excited that we’re finally here! We’ve deployed our first $50 million of Ether into Ethereum 2.0.

What’s Next for Ether Capital?

Now that we’ve delivered on this early promise, our intention is to continue building a staking position on Ethereum 2.0 until we’ve deployed a minimum of 30,000 ETH from our balance sheet over the coming months. As of today’s rate of 5.2%, this would deliver more than $7 million of revenue to the company as we move towards our goal of being one of the biggest ETH accumulators in the capital markets. We intend to make the assets on our balance sheet productive by using our revenue to fund other business opportunities and generate unique IP within the wider ecosystem.

We believe that Ether Capital is in a unique position to provide public market access to Ethereum and Web3. As we transition from being a passive owner of Ether to an operating business, we’re excited to generate meaningful revenue and expand our team and activities to deliver shareholder value.

We would like to thank all of our shareholders, board members and investors who have supported us throughout this journey. We’re proud to be the first public company in the world to stake such a meaningful amount of capital into Ethereum’s proof-of-stake network.

We look forward to the new year and plan to stake more of our capital while participating in network developments.

The original version of this article was published on Medium:

Is Ethereum a Better Store of Value than Bitcoin?

In this post, we’ll explain why we believe that Ethereum’s native token, Ether, is likely to become a better store of value than Bitcoin.

You might be wondering — how is this possible?

Bitcoin and its Hard Cap Monetary Policy

Bitcoin has traditionally captured the store of value narrative more than any other digital asset. And this makes sense, as scarcity is baked into its codebase. First, there is a hard cap of 21 million tokens that will ever be issued. Second, every four years there is a “halving” event in which Bitcoin’s issuance per block (aka its inflation rate) goes down by 50%.

Why does inflation need to happen in the first place? Simply put, inflation is required to keep the Bitcoin blockchain secure. Inflation rewards are earned by Bitcoin “miners” to compensate them for the energy and expense of putting transactions on the blockchain in an honest fashion.

With its declining inflation rate, Bitcoin’s monetary policy is similar to that of gold, the physical world’s apex store of value asset. As more gold is mined, it becomes costlier to find and extract which reduces new supply (i.e., inflation). Similarly, as Bitcoin gets closer to the 21 million limit, the lower its inflation rate will be. Bitcoin is cryptocurrency’s answer to a “hard” asset like gold.

Bitcoin’s investment thesis as a store of value asset is supported by its market cap (currently under $1 trillion) being multiples less than gold’s and the fact that Bitcoin as a digital asset is more useful than gold in payments and settlement.

Ethereum — a Stronger Monetary Policy?

When Ethereum first launched, its native token Ether (“ETH”) didn’t have a hard cap. The inflation per block paid to miners was 5 ETH and there was no “halving” event baked into Ethereum’s code.

The Ethereum community decided that a blockchain with more security via fixed block rewards was preferable to a blockchain with a store of value monetary policy. Many in the digital asset space said ETH could never be a store of value as a result. Fast forward to today and Ethereum’s block reward is now 2 ETH per block and there is still no hard cap.

Since Ether is required to pay for transactions on the Ethereum blockchain, demand for transactions has led to gains in Ether prices. The total market cap of Ether is now over $300 billion, but Ether has never been accorded that elusive store of value narrative like Bitcoin.

In our view, this is about to change dramatically with two upgrades to the network expected to go live later this year. These are:

  1. Proof of Stake: Ethereum is switching from energy intensive “mining” to a mechanism whereby holders of Ether (aka “stakers”) are in charge of putting transactions on the blockchain. Staking is much cheaper than mining as a result of the reduced energy expenditure. This leads to a drastically reduced inflation rate, which is expected to be under 1% per year.
  2. Fee Burn: This is a mechanism whereby transaction fees on the Ethereum network will be burned in a fashion akin to a share buyback. In other words, instead of transaction fees going into the pockets of miners, they are burned. This increases the scarcity of Ether for the benefit of all holders of Ether.

So how does this all play out and how can we compare Bitcoin’s monetary policy with Ethereum’s monetary policy post-staking and post-fee burn?

One interesting outcome could be that Ethereum’s inflation rate might turn negative. In other words, the amount of Ether burned from transaction fees could exceed the amount of Ether issued to stakers. This scenario is laid out in the chart below, where Bitcoin’s hard cap is shown next to Ether’s (potentially) decreasing supply.

If Bitcoin is sound money due to its 21 million token hard-cap, Ether is ultrasound money due to its (potentially) decreasing supply.

We at Ether Capital are extremely bullish on Ether due to the upgraded monetary policy we expect to see later this year. If you’re interested in learning more about this topic, check out our podcast with Ethereum researcher Justin Drake (Apple Podcasts or Spotify).

And if you have any questions or comments, reach out to us on Twitter @ethcap or email us at [email protected]

The original version of this article was published on Medium:

The Ethereum Toll Road

By Benjamin Roberts, Co-CIO of Ether Capital

When we started Ether Capital (NEO:ETHC) three years ago, we talked about Ethereum as a kind of digital toll road of the future; a place where anyone could build and use interoperable financial infrastructure and pay a small fee to the Ethereum network for securing it.

In our analogy, smart contract developers and users were cars, and the public Ethereum blockchain was the toll road. The analogy is a useful one because Ethereum, like a toll road, is privately owned public infrastructure, available for anyone to use as long as they’re willing to pay a small fee for access.

Since the beginning of the year, Ethereum usage has increased significantly. From the rapid adoption of stable-coins and decentralized exchanges to the tremendous growth of ‘defi’, demand for the Ethereum toll road has seen ‘toll fees’ collected by Ethereum miners increase to a staggering US$3 million per day as of this writing.

As Ethereum transitions to Proof of Stake over the next few years, ETH holders like Ether Capital will replace Ethereum’s miners as both transaction validators and beneficiaries of ‘toll road’ fees.

Since Ether Capital is listed on the NEO exchange in Canada, I thought it might be fun to compare Ethereum to a ‘real life’ toll road, the 407 expressway on the northern edge of Toronto.

I lived near the 407 highway as it was being constructed in the late 90s. At that time it was surrounded by farmland and underdeveloped areas and many people questioned whether it would ever collect enough tolls to justify the cost of construction.

In 2019, SNC-Lavalin, a global engineering firm, sold 10% of its stake in the highway for C$3.25 billion, valuing the 407 highway at C$32 billion, more than 20x the C$1.5 billion cost of construction. In the preceding year the 407 generated revenues equating to approximately C$3 million per day.

What happened? From 1997 to 2020, Toronto’s population increased from 4 to 6 million, and as real estate values skyrocketed in the city and people moved further north, the toll highway became part of the city’s critical infrastructure.

An analogous demographic shift is underway on Ethereum. A platform whose utility was being questioned just three years ago is collecting US$3 million in fees per day as of this writing (source:, and the Ethereum networks market cap of US$43 billion, is currently comparable to the 2019 valuation of the 407 toll highway.

While the total addressable market and potential revenue growth of a physical toll highway is bounded by its geographic location, the digital and global nature of Ethereum put its total addressable market in the trillions, and the rate of fee growth (from US$48,000 per day on January 2020 to US$3 million per day in August) is nothing short of astounding.

Ethereum network usage, and the price of ETH as a commodity will continue to be volatile, but the optionality it represents on ownership of the world’s financial superhighway make it both an incredible bet, and a fascinating experiment to take part in.

The original version of this article was published on Medium:

Introducing Ether Capital

By Benjamin Roberts, Co-CIO of Ether Capital

Today there exists a massive gulf between traditional financial markets and the Ethereum ecosystem. Just over one year ago, Som Seif and I began to conceptualize an entity that could bridge these two worlds.

Som is a visionary in the Canadian finance industry. He pioneered ETFs in Canada with Claymore Investments (acquired by BlackRock) and has an ongoing mission to drive innovation in this otherwise conservative sector of the Canadian economy.

Knowing this, I was very excited (and only a little nervous) when he suggested that we launch a public company that would acquire Ether, the computational commodity of the Ethereum blockchain.

Ethereum is an attempt to generalize and extend the concepts first proposed by Satoshi Nakamoto. While Bitcoin proposes that we can achieve better money by reaching consensus around the state of a distributed ledger, Ethereum attempts to let the whole world reach consensus around the state of a single virtual computer, a ‘world computer’.

Ethereum enables users to enter into financial contracts called ‘smart contracts’ with their money. Much like the internet in the late 1990s, Ethereum is currently being used by a handful of early adopters. Like the pioneers who understood the early web, there are many of us that have begun to contemplate the far-reaching implications of this technology.

Ethereum began in Canada. It’s the brainchild of Russian-Canadian Vitalik Buterin who dropped out of the University of Waterloo and then built and launched the platform with the help of members of the Toronto Bitcoin community.

Today, the Ethereum ecosystem has flourished outside Canada. Seeking regulatory certainty, the founders of Ethereum moved the project to Switzerland in 2014, and since then, the largest concentrations of Ethereum developers have emerged throughout Europe and Asia.

Ethereum fundamentally bridges the worlds of technology and finance. Its smart contracts require an oil-like commodity to pay for the execution of code. It creates strong use-cases for Machine Learning. It requires an understanding and flexible regulator who will engage in a dialogue with the community. Toronto, with its powerful financial presence and growing machine learning ecosystem, has a unique opportunity to capture the value of Ethereum’s inevitable impact on the world.

For these reasons and more, we’re launching Ether Capital as a public entity on the Toronto-based NEO exchange. The corporation will begin as a straightforward way for institutions and individuals to get exposure to Ether, the commodity that powers the Ethereum network. As the pool of assets grows and the organization scales and matures, we envision that Ether Capital will begin to use a small percentage of its Ether holdings to initiate a virtuous cycle of investments that will simultaneously add value to our balance sheet, the Ethereum protocol, and the Ether commodity.

We have already taken significant steps towards achieving this vision. We’ve spent time talking to the Ontario Securities Commission about the significance of this opportunity and our unique position in the marketplace. We’ve constructed a world class board of directors that span the Ethereum and Finance communities. We’ve raised 45 million CAD during a road show where we had an opportunity to explain Ethereum to dozens of portfolio and fund managers in London, New York, Toronto, Montreal, and Vancouver.

Ether Capital has already experienced a great deal of success, but we have no illusions about the challenges we will face and the journey ahead. The technology is new, the assets are volatile, the regulatory landscape is uncertain, and the market is full of unknowns. I think we will succeed, but whatever the outcome, I’m thrilled that we’ve set this in motion. The future may be uncertain, but the opportunity is real and the technology is too important to ignore.

Benjamin Roberts is the CEO of Citizen Hex and Co-Chief Investment Officer of Ether Capital. Ben has spent the last 10 years working in technology, with the last 5 years focused specifically on cryptocurrency. In 2017 Citizen Hex closed a seed round from Version One Ventures, OMERS Ventures, Purpose Investments, and 3 Angels Capital.

The original version of this article was published on Medium: